KPN ends marriage between Liberty Global and Ziggo

KPN ends marriage between Liberty Global and Ziggo

16.11.2017

On October 10, 2014, the European Commission (“Commission”) cleared the acquisition of Ziggo by Liberty Global. Approximately three years later, on October 26, 2017, the General Court annulled this clearance decision of the Commission.

Acquisition of Ziggo by Liberty Global
Liberty Global is a cable operator offering television, broadband Internet, fixed telephony, and mobile communications services, in eleven EU Member States and in Switzerland. In the Netherlands, Liberty Global distributes pay TV channels Sport1 and Film1.

Ziggo is a Dutch broadband cable network operator offering services similar to those of Liberty Global. Ziggo’s network covers more than half of the territory of the Netherlands. Via a joint venture, Ziggo owns 50% of the shares in HBO Nederland. HBO Nederland offers three HBO-branded pay TV channels.

In its assessment of the acquisition of Ziggo by Liberty Global, the Commission indicated that the concentration could significantly impede effective competition on several markets. For example, after the acquisition, Liberty Global would own three of the four premium pay TV channels in the Netherlands: Sport1, Film1, and HBO Nederland. In addition, Liberty Global would represent 60% of pay TV subscribers after the concentration.

In order to address the Commission’s concerns, Liberty Global committed, interalia, to divest Film1. Following these commitments, the Commission cleared the acquisition of Ziggo by Liberty Global.

KPN
In 2015, KPN – a competitor of Liberty Global and Ziggo – appealed the clearance decision of the Commission. Before the General Court, KPN claimed, interalia, that the Commission failed to give reasons for not analysing possible vertical anti-competitive effects on the possible market for premium pay TV sports channels.

KPN’s stance on this matter is clear and understandable: in its decision, the Commission indicated the possibility that premium pay TV film channels and premium pay TV sports channels were two separate product markets. However, the Commission left the precise market definition open in the end. Notwithstanding the foregoing, the Commission examined possible vertical effects on the i) possible market for premium pay TV film channels (Film1 and HBO Nederland) and ii) on the possible market for premium pay TV channels (Sport1, Film1, and HBO Nederland).

Because only Liberty Global owned a sports channel (Sport1), the Commission noted that there would be no change on a horizontal level after the takeover. As a result, the Commission saw no reason to examine any possible vertical effects of the concentration between Liberty Global and Ziggo on the possible market for premium pay TV sports channels.

KPN however, argued that it could not be ruled out that there would be no vertical effects. For example, access to Sport1 could be essential for retail suppliers of pay TV (sports) channels. These suppliers compete with Liberty Global on the downstream market for pay TV. Because Liberty Global is also active upstream – where retail suppliers of pay TV can purchase Sport1 from Liberty Global – Liberty Global could foreclose its downstream competitors by not giving them access to Sport1.

Foreclosure is all the more so a credible risk because the acquisition enabled Liberty Global to cover 90% of the territory of the Netherlands and because there are only two premium pay TV sports channels in the Netherlands: Sport1 and Fox Sports.

The General Court
The General Court emphasised that the importance of a statement of reasons cannot be underestimated and that Article 296 TFEU requires that decisions be sufficiently motived.

The Commission left the market definition open, but nevertheless looked at vertical effects on the possible markets for premium pay TV film channels and for premium pay TV (which includes both film and sports channels). The General Court noted that in any case, the Commission should have explained why there were no vertical concerns on the possible market for premium pay TV sports channels.

The Commission’s reasoning that nothing would change on a horizontal level because Liberty Global was owner of Sport1 before the acquisition and would remain owner of Sport1 after the acquisition was found to be insufficient. Downstream after all, there was a change: acquiring Ziggo would strengthen the position of Liberty Global, who was also active on the downstream market.

An amusing argument put forward by the Commission to justify that it did not look into vertical effects was that Liberty Global would not have the possibility to foreclose its downstream competitors – retail suppliers of pay TV. Liberty Global’s lack of upstream market power would prevent it from having the ability to foreclose them. According to the Commission, this was apparent because Liberty Global owned only one (Sport1) of the two premium pay TV sports channels…

The General Court rejected all arguments presented by the Commission in justification of its omission to assess the potential vertical effects on the possible market for premium pay TV sports channels. Consequently, the General Court annulled the decision by which the Commission cleared Liberty Global’s takeover of Ziggo.

Conclusion
It is exceptional that the Commission gets such a dressing-down from the General Court, and it is even more exceptional that the General Court annuls a decision clearing a concentration. The General Court has done this on one earlier occasion, in 2006, when it annulled the decision clearing the joint venture between Sony and BMG on the grounds of inadequate reasoning and a manifest error of assessment. However, the European Court of Justice later reversed this.

If the Commission lodges no successful appeal against this judgment, it will have to take a new decision. In the meantime, Liberty Global and Ziggo should not fear an obligatory disentanglement. Even if the Commission were to conclude that there could be anti-competitive effects on the possible market for premium pay TV sports channels, that does not mean that disentanglement of the concentration would be the only way to take away these concerns. A possible solution would be the divestiture of Sport1, or to have Liberty Global commit on the (fair) treatment of retail suppliers of pay TV.